Approximately $108 million of structured securities affected
New York, March 06, 2020 -- Moody's Investors Service, ("Moody's") has
downgraded the ratings on one class and affirmed the ratings on four classes
in Morgan Stanley Capital I Trust 2007-TOP25.
Cl. A-J, Downgraded to B1 (sf); previously on
Jan 27, 2019 Affirmed Ba2 (sf)
Cl. B, Affirmed Caa3 (sf); previously on Jan 27,
2019 Downgraded to Caa3 (sf)
Cl. C, Affirmed C (sf); previously on Jan 27,
2019 Affirmed C (sf)
Cl. D, Affirmed C (sf); previously on Jan 27,
2019 Affirmed C (sf)
Cl. X*, Affirmed C (sf); previously on Jan 27,
2019 Affirmed C (sf)
* Reflects interest-only classes
RATINGS RATIONALE
The rating on one P&I class, Cl. A-J, was
downgraded due to the deal's exposure to specially serviced loans
and Moody's concerns of potential interest shortfalls. While
Cl. A-J benefits from significant credit support,
two of the remaining loans are in special servicing and account for 81%
of the deal.
The ratings on three P&I classes were affirmed because the ratings
are consistent with Moody's expected loss plus realized losses.
The rating on the IO class was affirmed based on the credit quality of
the referenced classes.
Moody's rating action reflects a base expected loss of 41.8%
of the current pooled balance, compared to 36.7% at
Moody's last review. Moody's base expected loss plus realized
losses is now 9.2% of the original pooled balance,
compared to 9.1% at the last review. Moody's
provides a current list of base expected losses for conduit and fusion
CMBS transactions on moodys.com at http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF215255.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. Performance
that falls outside the given range can indicate that the collateral's
credit quality is stronger or weaker than Moody's had previously expected.
Factors that could lead to an upgrade of the ratings include a significant
amount of loan paydowns or amortization, an increase in the pool's
share of defeasance or an improvement in pool performance.
Factors that could lead to a downgrade of the ratings include a decline
in the performance of the pool, loan concentration, an increase
in realized and expected losses from specially serviced and troubled loans
or interest shortfalls.
METHODOLOGY UNDERLYING THE RATING ACTION
The principal methodology used in rating all classes except interest-only
class was "Moody's Approach to Rating Large Loan and Single
Asset/Single Borrower CMBS" published in July 2017. The methodologies
used in rating interest-only class were "Moody's Approach
to Rating Large Loan and Single Asset/Single Borrower CMBS" published
in July 2017 and "Moody's Approach to Rating Structured Finance Interest-Only
(IO) Securities" published in February 2019. Please see the list
of ratings at the top of this announcement to identify which class is
interest-only (indicated by the *). Please see the Rating
Methodologies page on www.moodys.com for a copy of these
methodologies.
Moody's analysis incorporated a loss and recovery approach in rating the
P&I classes in this deal since 81% of the pool is in special
servicing. In this approach, Moody's determines a probability
of default for each specially serviced and troubled loan that it expects
will generate a loss and estimates a loss given default based on a review
of broker's opinions of value (if available), other information
from the special servicer, available market data and Moody's
internal data. The loss given default for each loan also takes
into consideration repayment of servicer advances to date, estimated
future advances and closing costs. Translating the probability
of default and loss given default into an expected loss estimate,
Moody's then applies the aggregate loss from specially serviced loan to
the most junior classes and the recovery as a pay down of principal to
the most senior classes.
DEAL PERFORMANCE
As of the February 12, 2020 distribution date, the transaction's
aggregate certificate balance has decreased by 93% to $108
million from $1.5 billion at securitization. The
certificates are collateralized by eight mortgage loans ranging in size
from less than 1% to 65% of the pool. One loan,
constituting 0.2% of the pool, has defeased and is
secured by US government securities.
Moody's uses a variation of Herf to measure the diversity of loan
sizes, where a higher number represents greater diversity.
Loan concentration has an important bearing on potential rating volatility,
including the risk of multiple notch downgrades under adverse circumstances.
The credit neutral Herf score is 40. The pool has a Herf of 2,
compared to 3 at Moody's last review.
One loan, constituting 2.1% of the pool, is
on the master servicer's watchlist. The watchlist includes
loans that meet certain portfolio review guidelines established as part
of the CRE Finance Council (CREFC) monthly reporting package. As
part of Moody's ongoing monitoring of a transaction, the agency
reviews the watchlist to assess which loans have material issues that
could affect performance.
Nineteen loans have been liquidated from the pool, resulting in
an aggregate realized loss of $98 million (for an average loss
severity of 70%). Two loans, constituting 81%
of the pool, are currently in special servicing. The largest
specially serviced loan is the Shoppes at Park Place Loan ($70.2
million -- 64.9% of the pool), which is secured
by a 325,000 square foot (SF) retail center located in Pinellas
Park, Florida approximately 15 miles west of Tampa. The property
is shadow anchored by Target and Home Depot; the collateral anchor
includes Regal Cinemas (22.4% of the net rentable area (NRA);
lease expiration 10/31/2029). The property was 93% leased
as of October 2019, compared to 96% in November 2018.
The loan transferred to special servicing in January 2017 due to maturity
default.
The second largest specially serviced loan is the Romeoville Towne Center
($17.6 million -- 16.3% of the pool),
which is secured by a 108,000 SF retail center located in Romeoville,
Illinois, a suburb of Chicago. The loan transferred to special
servicing in March 2014 for imminent default, in connection with
the shutting of Dominick's Supermarkets as part of parent company Safeway's
exit from the greater Chicago market. Dominick's operated as the
anchor tenant and occupied 58% of the center's NRA. The
Dominick's lease ran through the end of February 2019. Due to the
vacancy, currently the property was 38% leased as of November
2019, compared to 94% leased and 32% occupied at Moody's
last review.
Moody's estimates an aggregate $45.2 million loss (52%
expected loss on average) from the specially serviced loans.
As of the February 12, 2020 remittance statement cumulative interest
shortfalls were $2.9 million. Moody's anticipates
interest shortfalls will continue because of the exposure to specially
serviced loans and/or modified loans. Interest shortfalls are caused
by special servicing fees, including workout and liquidation fees,
appraisal entitlement reductions (ASERs), loan modifications and
extraordinary trust expenses.
Moody's received full year 2018 operating results for 100% of the
pool, and partial or full year 2019 operating results for 50%
of the pool (excluding specially serviced and defeased loans).
Moody's weighted average conduit LTV is 79%, compared
to 71% at Moody's last review. Moody's conduit
component excludes loans with structured credit assessments, defeased
and CTL loans, and specially serviced and troubled loans.
Moody's net cash flow (NCF) reflects a weighted average haircut
of 11% to the most recently available net operating income (NOI).
Moody's value reflects a weighted average capitalization rate of
11.0%.
Moody's actual and stressed conduit DSCRs are 1.59X and 1.61X,
respectively, compared to 1.88X and 1.66X at the last
review. Moody's actual DSCR is based on Moody's NCF
and the loan's actual debt service. Moody's stressed
DSCR is based on Moody's NCF and a 9.25% stress rate
the agency applied to the loan balance.
The top three non-defeased performing loans represent 15.3%
of the pool balance. The largest non-defeased performing
loan is the Franklin Center Loan ($10 million -- 9.2%
of the pool), which is secured by a 320 bed (160 room) nursing home/rehabilitation
center located in Flushing, New York. The property is located
0.4 miles from Flushing Hospital and 0.9 miles from the
New York Presbyterian Queens Hospital. As of December 2018,
the property was 100% occupied, and has been 100%
occupied since securitization. The loan is interest only for its
entire term and is scheduled to mature in September 2021. Moody's
LTV and stressed DSCR are 99% and 1.32X, respectively.
The second largest non-defeased performing loan is the Cherryvale
Plaza Loan ($4.3 million -- 4.0% of the
pool), which is secured by an approximately 81,000 SF shopping
center located in Reisterstown, Maryland. The property is
anchored by Office Depot (25.3% of NRA; lease expiration
11/30/2021) and Aldi (21.5% of NRA; lease expiration
12/31/2026). The property was 80% occupied as of December
2019, compared to 88% at Moody's last review.
Moody's LTV and stressed DSCR are 56% and 1.84X, respectively,
compared to 47% and 2.13X at Moody's last review.
The third largest non-defeased performing loan is the 1750 Boston
Post Road Loan ($2.3 million -- 2.1%
of the pool), which is secured by an approximately 21,000
SF retail property in Milford, Connecticut. The property
is 100% occupied by La-Z-Boy (lease expiration 11/30/2021
with extension options until 2036). The loan is fully amortizing.
Moody's LTV and stressed DSCR are 43% and 2.34X, respectively,
compared to 48% and 2.1X at the last review.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions of the disclosure form.
The analysis includes an assessment of collateral characteristics and
performance to determine the expected collateral loss or a range of expected
collateral losses or cash flows to the rated instruments. As a
second step, Moody's estimates expected collateral losses or cash
flows using a quantitative tool that takes into account credit enhancement,
loss allocation and other structural features, to derive the expected
loss for each rated instrument.
Moody's did not use any stress scenario simulations in its analysis.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Seth Glanzman
Associate Lead Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Romina Padhi
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
